Microsoft's top geek and his newest tech guru explain why they love--and hate--e-mail, and how they plan to fix it.
By David Kirkpatrick

(FORTUNE Magazine) – On a shelf in Bill Gates' austere office at Microsoft in Redmond, Wash., sits a crystal ball. It was an apt accouterment for the conversation FORTUNE's David Kirkpatrick had there last month with Gates and top lieutenant Ray Ozzie--a 90-minute exploration of how technology will shape our working lives in the next decade. We all know what it's like today: E-mail is indispensable both at home and at work; wireless handsets place us a mere phone call or instant message away 24/7. But sometimes that convenience can feel more like punishment for busy executives as they struggle to keep up with the onslaught of communication. (A recent study by consulting firm McKinsey calculates that the average manager is interrupted about every ten minutes.)

Gates knows that Microsoft has to do more to help people stave off information overload. The company's Office software--encompassing tools for writing, calculating, presenting, and communicating--serves as the primary desktop application for 400 million workers the world over. Microsoft's "information worker" division, which makes Office, is an engine of the company's success. Of Microsoft's $39 billion in revenues over the past four quarters, the Office-related products contributed $11 billion, and $7.9 billion of its operating profit--a margin of 72%. No wonder Gates thinks hard about how to keep this business growing.

That's the main reason Microsoft bought Ozzie's startup, Groove Networks, in March. Groove's software enables teams of workers to create shared online spaces in which they can collaborate on documents, spreadsheets, and other applications. (It beats e-mailing attachments back and forth.) Gates especially wanted Ozzie himself: He made his mark as the inventor and programmer of Lotus Notes, software that first acquainted business with the idea of collaboration tools and that became a major success in e-mail. For years Gates called Ozzie "the best programmer who doesn't work for Microsoft"; now he's remedied that. In their first-ever joint interview, the two men insist that Microsoft will come up with better collaboration software and other tools to help workers get beyond today's e-mail travails.

Everybody seems to feel overloaded with information. Is that ever going to change?

Ozzie: Over the past few years there's been an increasing blur between the boundaries of work and home. People used to go to work at a specific time, come home at a certain time, and have white space in their lives during commutes or other times. Now you can impose upon yourself a never-ending flood of information. The question is, How will people utilize technology to gain control in a way that lets them have a quality life and be effective at work? That's what we're attempting to do. We've barely scratched the surface.

Gates: There's a duality about information overload. It's not just overload. We are empowering you to get important information. You really do care if the project is on time or if your customer is happy. Say sales are lower than you expect. You can delve into that and find out who should care about it and share with them exactly what you're looking at, then very quickly get a response. That is broadly called business intelligence; it takes information workers to a new level. Some frustration goes with this, and improvements have to take place, but people are way more effective than they were in the past.

Ozzie: Technology is a means to an end, and the end for business is creating value. The nature of business is changing. It's going from an era of hierarchical, stovepiped organizations to one of a mesh where people and companies can take advantage of workforces and business partners worldwide. They are using these communication and collaboration tools to reinvent business processes in ways they never could have without cheap communications and software.

How soon before I can drive home and not be interrupted, but know that something important from my wife or boss can get through?

Gates: Based on what you're doing and who is contacting you and how urgent they say it is, the software can decide if you should be interrupted. We're seeing a tiny bit of that today with our new Office Communicator product, which ships fairly soon. If you're out, for example, you can tell it which callers you want to forward to your cellphone. Now, really unifying that for your e-mail, phone calls, and instant messaging is still going to take years.

Will we get to a point when e-mail seems as quaint as letter writing does to us today?

Gates: No. There are communications you want to target to a small set of people, and you want them to know you're putting your credibility behind saying, "Please pay attention to this right now." That will always be a part of the mix. But e-mail right now gets used for things where it's not perfect. If you have attachments going back and forth with lots of different versions of a document, that's crazy.

Ozzie: E-mail has become a victim of its own success. Whereas initially it might have been used to communicate a simple thought or a message from place to place, today people are using it to manage entire projects and teams. Funneling messages in chronological order into an in-box is not necessarily the best model for dealing with different projects, different teams, different issues, while other unrelated things get intermixed with those. You have no sense of the priorities.

Bill, you have been nailed in court through e-mail that was found in legal discovery. Has that changed the way you use it?

Gates: No. I live the examined life. Basically every e-mail that I've ever sent has been looked at by something like 30 or 40 lawyers to see if there's any way it can be misconstrued. I don't put any notes at the bottom where I say, "Note to lawyer: When I say 'Beat the competition,' I mean in the nice friendly way we always do." [laughter] So look, the idea that everything you're doing can be examined--there's nothing really wrong with that. Voicemail is like that too. People just should get used to the idea that there's going to be some visibility for things. I don't think we're all going to just go down to the local pay phone or something.

Would you like to use e-mail less?

Gates: Sure. We're going to make SharePoint [Microsoft's team collaboration product] a clear adjunct to e-mail. So if we have an event coming up, we can create a shared workspace that contains the documents instead of having a chain of e-mail back and forth with lots of enclosures.

Even to discuss technology in the workplace makes some people angry. There's deep frustration out there at the way their lives are continually interrupted.

Gates: That's those mobile-phone people, I think. [laughter]

Ozzie: People who have not grown up with this technology have a much more difficult time adapting to what [former Microsoft researcher] Linda Stone named this "continuous partial attention" mode where you're dealing with many, many things at the same time. The problem is that the technology makes it so easy to just flood yourself with information, that people who have not established self-discipline can become very frustrated and less productive.

Gates: Because the tools are so capable, you have to be more explicit about saying, "Okay, I'm going to choose not to get on e-mail for a few days, and I'm just going to be thinking about long-term strategies."

You don't get any e-mails during your "think weeks," right? [Gates hunkers down in a remote cabin periodically to ponder strategy.]

Gates: I've had one or two when I didn't do e-mail at all. Mostly I'll pick two or three times when I go and look at e-mail just to see if there's anything particularly urgent, but it's a really well-defined block of time.

Around here people are thoughtful about this. For example, during which meetings are people allowed to read e-mail? You have to create protocols around these things. There are three kinds of meetings at Microsoft: where it's a free-for-all and you can do whatever you want; where the people at the table have to pay attention but the others don't (if you sit in a chair in back, that's a signal that you're going to just sort of be paying half attention); and meetings where we want total attention. The default really is: If you're sitting at the table, you're supposed to focus on what's going on.

I've been using an e-mail work style for 15 years, but instant messaging has been hard to get used to. How many people am I going to let interrupt me? If I don't let them, what kind of a signal is that?

How many e-mails do you get per day?

Gates: If you take nondistribution lists just from inside Microsoft, I only get 30 or 40 e-mails a day that are really targeted at me, that somebody expects me to do something about. I also have certain defined names and domains that I treat like Microsoft--e-mail from Intel, for example, or from Warren Buffett's assistant. (Buffett doesn't have his own e-mail address.) Then there are Microsoft distribution lists. Depending on how many I put myself on, I can get 30 or 40 e-mails where we're discussing a competitor or a new project. With e-mail rules, which I use pretty heavily, you can have those only show up in a folder. Then there's e-mail from outside Microsoft.

Now I just use the normal whitelist and blacklist capabilities that are in Exchange. My whitelist is Microsoft and people I correspond with, and the blacklist is for those big distribution lists people put me on. Then for everything in between there's an assistant--just one person--who sits and looks at something like 300 a day. If it's somebody who should talk to me directly, my assistant just drops it in my in-box.

Ozzie: Since I came to Microsoft my e-mail patterns have regressed a little. The combination of messages sent and received--and I'm not on mailing lists here yet--is 125 to 175 a day. When I was at Groove, it was in the 30 to 40 range. But that is not a fair comparison because at Groove the vast majority of information that I was receiving was in Groove workspaces. We banned e-mail lists.

To get people into the product?

Ozzie: To force people to think of other ways of doing things. So we put things into containers as opposed to having them streamed in. Here I'm already starting to drive some of the people I'm working with into workspaces.

Your e-mail address is the closest thing to a universal digital identity that most people have. Do we need a new one, in fact?

Gates: No, that will be fairly permanent. In fact, instant messaging is leveraging the same name. You may have a work address and personal address, but you'll have at most those two IDs for everything. Eventually you won't have phone numbers to deal with, and everything will just go around that e-mail identity.

What competitors do you watch in the office workplace environment?

Gates: In terms of how we take workflow, collaboration, document search, business intelligence, e-mail, and telephony and make them better for information workers, we're relatively unique. Not many products are pervasive on desktops in the world. There are things on the fringes like the Skype phenomenon or consumer instant messaging. Our biggest competitor is always the status quo--people may just do things the way they've been doing them and feel, hey, that's good enough.

What about your open-source rival OpenOffice?

Gates: Well, most people already own Microsoft Office, and so it's free to them, whereas OpenOffice is not the same quality, not innovating, and doesn't have all the modules. We compete with our installed base by innovating.

One reason I'm so excited to have Ray is that he gets to apply all his thinking about collaboration. It's not just having Groove as part of Office, but charging up Office to articulate how the way you work will change and how software can facilitate that.

Ozzie: Every place you can identify a boundary--from a national boundary, to boundaries between federal, state, and local, to boundaries between home and work--something is causing it to blur. We have as an industry traditionally built technology to serve those boundaried entities. What excites me is that we can mold technologies into a form that matches the changing nature of business and work.



Log on to read a longer transcript of the Gates and Ozzie interview, plus "Oz Joins the Empire."